Anything I've ever done that ultimately was worthwhile... initially scared me to death.
Betty Bender
Many individuals and experts state that market timing is impossible. If one has the right approach, then timing the markets can no longer be deemed to be an impossible venture.We all know there are seasons in a year and we know roughly when winter, summer, fall, and spring will begin. No one can predict the exact time the one season will transition into the next. The same rationale applies to market timing. If you are trying to predict the exact market turning points, then you might get it right once or twice, but overall your record will be dismal, it is an exercise in futility for the most part and best reserved for those who seem to have a deep desire to take on large losses.
Everyone, in general, knows when winter, fall, spring or summer will roughly begin. However, no one can predict the exact date summer will transition into fall. The same line of attack can be applied to timing the markets. Instead of trying to identify the precise Market top or bottom, we look for signs of bottoming and topping action in the market, which would correlate to spotting changes in the weather. This data in turn facilitates the process of determining how close one season is from transitioning to the next. Adopting this approach makes market timing a distinct and achievable feat.
Perhaps the first thing for humans to learn would be simple money management skills. After all, you cannot run without learning to crawl and walk.
Researchers have demonstrated that humans are no better than monkey’s when it comes to managing money (Kahneman, Santos et al.).
Kahneman asserts in his book, Thinking Fast & Slow that monkeys with dart board are actually better than humans trying to manage money on wall street.
Some interesting quotes from his book.
“People who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart-throwing monkeys who would have distributed their choices evenly over the options.”
“The idea that the future is unpredictable is undermined every day by the ease with which the past is explained…Our tendency to construct and believe coherent narratives of the past makes it difficult for us to accept the limits of our forecasting ability. Everything makes sense…
